(TSX: KBL)
EDMONTON, AB, May 12, 2022
/CNW/ - K-Bro Linen Inc. ("K-Bro" or the "Corporation") today
announces its Q1 2022 financial and operating
results.
Q1 2022 Financial and Operating
Highlights
- Consolidated hospitality revenue for Q1 2022 increased by
299.4% compared to Q1 2021.
- Consolidated healthcare revenue for Q1 2022 increased by 0.4%
compared to Q1 2021.
- EBITDA decreased in the first quarter to $7.1 million compared to $10.1 million over the comparable 2021.
- Net earnings in the first quarter of 2022 decreased by
$2.0 million to $0.4 million compared to $1.6 million in the comparative period of 2021,
and as a percentage of revenue decreased by 4.1% to 0.7%.
- For the first quarter of 2022, K-Bro declared dividends of
$0.300 per common share.
- Long-term debt at the end of Q1 2022 was $36.6 million compared to $38.0 million at the end of fiscal 2021
reflecting our strong balance sheet.
Linda McCurdy, President &
CEO of K-Bro commented, " I am pleased with our first quarter
results, particularly given the trends that we believe will
positively impact us through the end of this year. Q1 is
typically our seasonally low quarter, and this year our results
were also impacted by rapidly rising UK utility costs, the
significant impact of transitory costs with respect to our new AHS
province-wide contract, and temporarily tight labour markets.
Going forward we expect to benefit from seasonally stronger
quarters, our recent UK natural gas hedge through the end of 2024,
improvement in our labour recruitment and retention, and certain
supplementary price increases as a result of these cost increases.
We expect these factors to provide some benefit in Q2 and
have a larger impact on our results in the second half of the
year."
Hospitality revenues for 2021 saw increases of 299.4% on a
year-over-year basis primarily a result of COVID-19 pandemic
restrictions being eased. Healthcare revenues for the first quarter
of 2022 continued to be strong with a 0.4% increase in customer
demand. During the month of April we completed the transition of
all new rural AHS volumes which fall under the 11-year contract
with AHS which commenced on August 1,
2021. As a result of this, during the last two
quarters we have incurred certain one-time transition costs as we
integrated this new business. We anticipate this will continue for
the second quarter of 2022 as well.
While we experienced a strong recovery of our hospitality
business in the quarter, increasing natural gas costs, employee
absenteeism due to the Omicron variant and temporary tight labour
markets in certain cities in which we operate continued in the
first quarter resulting in additional costs being incurred to
process the volumes. Our outlook for the 2022 hospitality
business continues to remain positive particularly in light of the
recent lifting of government restrictions on international border
crossings and increasing business and leisure travel and the strong
top line performance experienced in the second half of the
quarter.
We will continue to look to leverage our strong liquidity
position, balance sheet and access to the capital markets to
execute on M&A opportunities in North
America and Europe as they
arise," concluded McCurdy.
Highlights and Significant Events for Fiscal
2022
Capital Investment Plan
For fiscal 2022, the Corporation's planned capital spending is
expected to be approximately $5.0
million on a consolidated basis. This guidance includes both
strategic and maintenance capital requirements to support existing
base business in both Canada and
the UK and does not take into account amounts accrued in 2021 that
are to be paid in 2022, nor does this account for the projected
$10.0 million in additional capital
expenditures to support new AHS business that was announced earlier
in 2021 and is discussed above under the Alberta Contract Award. We
will continue to assess capital needs within our facilities and
prioritize projects that have shorter term paybacks as well as
those that are required to maintain efficient and reliable
operations.
COVID-19 Pandemic
The COVID-19 pandemic caused world governments to institute
travel restrictions, impacting travel both in and out of
Canada and the UK. Beginning in
mid-March 2020, we saw significantly
reduced hotel occupancy rates compared to historical levels. Demand
for both business and leisure airline travel declined significantly
on a global basis, and airlines responded by cancelling
international and domestic flights. Accordingly, hospitality
volumes in all of our Canadian and UK markets slowed to
historically low levels. However in mid-2021 as government
restrictions began to ease the hospitality segment began to show
strong recovery which is expected to continue.
In late Q1 2020 and into Q2 2020 we initially saw decreases in
our healthcare business as a result of hospitals and health
authorities taking measures to prepare for anticipated surges in
COVID-19 related occupancy (i.e., cancellation of elective
surgeries). Since then however, we have continued to see
healthcare revenues trend consistently above historical levels due
to increased demand. We cannot predict with certainty how the
progression of COVID-19 will impact overall volumes going
forward.
The following table depicts the impact of the COVID-19 pandemic
on the Corporation's revenue for 2021 and 2022.
Month
|
Healthcare
Revenue Change
(2021 compared to
2019)
|
Hospitality
Revenue Change
(2021 compared to
2019)
|
Consolidated
Revenue Change
(2021 compared to
2019)
|
Month
|
Healthcare
Revenue Change
(2022 compared to
2019)
|
Hospitality
Revenue Change
(2022 compared to
2019)
|
Consolidated
Revenue Change
(2022 compared to
2019)
|
|
|
|
|
|
|
|
|
January
|
25%
|
-80%
|
-14%
|
January
|
24%
|
-37%
|
1%
|
February
|
26%
|
-82%
|
-19%
|
February
|
28%
|
-26%
|
5%
|
March
|
28%
|
-80%
|
-20%
|
March
|
30%
|
-10%
|
12%
|
Q1 2021 compared to
Q1 2019
(Jan to March)
|
26%
|
-81%
|
-18%
|
Q1 2022 compared to
Q1 2019
(Jan to March)
|
27%
|
-23%
|
6%
|
April
|
24%
|
-81%
|
-22%
|
April
|
|
|
|
May
|
21%
|
-69%
|
-19%
|
May
|
|
|
|
June
|
22%
|
-49%
|
-13%
|
June
|
|
|
|
Q2 2021 compared to
Q2 2019
(April to June)
|
23%
|
-66%
|
-18%
|
Q2 2022 compared to
Q2 2019
(April to June)
|
|
|
|
|
|
|
|
|
|
|
|
July
|
16%
|
-40%
|
-11%
|
July
|
|
|
|
August
|
11%
|
-30%
|
-9%
|
August
|
|
|
|
September
|
12%
|
-28%
|
-8%
|
September
|
|
|
|
Q3 2021 compared to
Q3 2019
(July to September)
|
13%
|
-33%
|
-9%
|
Q3 2022 compared to
Q3 2019
(July to September)
|
|
|
|
|
|
|
|
|
|
|
|
October
|
12%
|
-28%
|
-5%
|
October
|
|
|
|
November
|
19%
|
-23%
|
1%
|
November
|
|
|
|
December
|
20%
|
-23%
|
1%
|
December
|
|
|
|
Q4 2021
compared to Q4 2019 (October to December)
|
17%
|
-25%
|
-1%
|
Q4 2022
compared to Q4 2019
(October to December)
|
|
|
|
YTD
|
20%
|
-49%
|
-11%
|
YTD
|
|
|
|
As an ongoing risk, the duration and full financial effect of
the COVID-19 pandemic is unknown at this time, and continues to be
offset through the Corporation's business continuity plan and other
mitigating measures. Any estimate of the length and severity of
these developments is therefore subject to significant uncertainty,
and, accordingly, estimates of the extent to which the COVID-19
pandemic may materially and adversely affect the Corporation's
operations, financial results and condition in future periods are
also subject to significant uncertainty.
Therefore, uncertainty about judgments, estimates and
assumptions made by management during the preparation of the
Corporation's interim condensed consolidated financial statements
related to potential impacts of the COVID-19 pandemic on revenue,
expenses, assets, liabilities, and note disclosures could result in
a material adjustment to the carrying value of the assets or
liabilities affected.
Based on management's review, there were no CGUs as at
March 31, 2022 showing signs of
impairment that were not already considered at December 31, 2021. The Corporation will continue
to carefully monitor the situation as it pertains to COVID-19 and
further consider if there are new, or additional indicators, that
exist during the year.
Financial Results
|
For The Three
Months Ended March 31,
|
|
|
(thousands,
except per share amounts
and percentages)
|
Canadian
Division
2022
|
UK
Division
2022
|
2022
|
Canadian
Division
2021
|
UK
Division
2021
|
2021
|
$
Change
|
%
Change
|
Revenue
|
$
49,234
|
$
12,200
|
$
61,434
|
$
44,702
|
$
2,912
|
$
47,614
|
13,820
|
29.0%
|
Expenses included in
EBITDA
|
41,715
|
12,657
|
54,372
|
33,744
|
3,809
|
37,553
|
16,819
|
44.8%
|
EBITDA
|
7,519
|
(457)
|
7,062
|
10,958
|
(897)
|
10,061
|
(2,999)
|
-29.8%
|
EBITDA as a % of
revenue
|
15.3%
|
-3.7%
|
11.5%
|
24.5%
|
-30.8%
|
21.1%
|
-9.6%
|
-45.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
(loss)
|
1,429
|
(1,875)
|
(446)
|
4,157
|
(2,523)
|
1,634
|
(2,080)
|
-127.3%
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss)
per share
|
$
0.134
|
$
(0.176)
|
$
(0.042)
|
$
0.392
|
$
(0.238)
|
$
0.154
|
$
(0.196)
|
-127.3%
|
Diluted earnings (loss)
per share
|
$
0.134
|
$
(0.175)
|
$
(0.042)
|
$
0.390
|
$
(0.237)
|
$
0.153
|
$
(0.195)
|
-127.5%
|
Dividends declared per
diluted share
|
|
|
$
0.30
|
|
|
$
0.300
|
$
-
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
325,041
|
|
|
316,101
|
8,940
|
2.8%
|
Long-term debt
(excludes lease liabilities)
|
|
|
36,615
|
|
|
36,811
|
(196)
|
-0.5%
|
|
|
|
|
|
|
-
|
|
|
Cash provided by
operating activities
|
|
|
9,713
|
|
|
8,542
|
1,172
|
13.7%
|
Net change in non-cash
working capital items
|
|
|
3,098
|
|
|
692
|
2,407
|
347.8%
|
Share-based
compensation expense
|
|
|
512
|
|
|
506
|
6
|
1.2%
|
Maintenance capital
expenditures
|
|
|
690
|
|
|
112
|
578
|
516.1%
|
Principal elements of
lease payments
|
|
|
1,834
|
|
|
1,852
|
(18)
|
-1.0%
|
Distributable cash
flow
|
|
|
3,579
|
|
|
5,380
|
(1,801)
|
-33.5%
|
Dividends
declared
|
|
|
3,216
|
|
|
3,203
|
13
|
0.4%
|
Payout ratio
|
|
|
89.9%
|
|
|
59.5%
|
30.4%
|
51.1%
|
(1) See "Terminology"
for further details
|
Dividends
The Board of Directors has declared a monthly dividend of
$0.10 per common share for the period
from May 1 to May 31, 2022, to be
paid on June 15, 2022 to shareholders
of record on May 31, 2022. The
Corporation's policy is for shareholders of record on the last
business day of a calendar month to receive dividends during the
fifteen days following the end of such month. K-Bro designates this
dividend as an eligible dividend pursuant to subsection 89(14) of
the Income Tax Act (Canada)
and similar provincial and territorial legislation.
OUTLOOK
The Corporation's healthcare segment continues to outperform
relative to historical levels. For the hospitality segment,
management expects that the current trend towards loosening
restrictions on international border crossings and increasing
business/leisure travel will continue to support the strong
recovery momentum in hospitality revenues experienced since
mid-2021. From a healthcare perspective, we anticipate that Q2
revenues will trend in a similar fashion quarter over quarter basis
as to those achieved in Q1.
For the last few quarters, management has been focused on
operational efficiencies and the transition of new AHS business,
which was completed in early April 2022. Over the balance of
2022, management will continue to focus on optimizing plant
efficiencies associated with the transition of new AHS
business.
From an input cost perspective, since early March 2022, particularly in the UK, the
Corporation has faced significant volatility in the cost of natural
gas due to current geopolitical issues. In April 2022, to mitigate this instability, the
Corporation locked in natural gas supply rates in the UK until
December 2024. Based on these locked in rates we anticipate
natural gas as a percent of revenue to increase 2 to 3 percentage
points from historical levels for 2022. We expect to mitigate
these cost increases with price increases to our customers although
there could be some lag. Management is confident that the
combination of these factors, a relief in the temporarily tight
labour markets in certain cities in which K-Bro operates and
potential stabilization of natural gas rates will contribute to a
strong 2022.
In addition, management continues to evaluate opportunities to
accelerate growth through M&A opportunities in both
North America and Europe, which remain highly fragmented. K-Bro
will look to leverage its strong liquidity position, balance sheet
and access to the capital markets to execute on these
opportunities, should they arise. For further information about the
impact of the COVID-19 pandemic on our business, see the "Summary
of Interim Results, and Key Events".
CORPORATE PROFILE
K-Bro is the largest owner and operator of laundry and linen
processing facilities in Canada
and a market leader for laundry and textile rental services in
Scotland and the North East of
England. K‑Bro and its
wholly-owned subsidiaries operate across Canada and the UK, providing a range of linen
services to healthcare institutions, hotels and other commercial
accounts that include the processing, management and distribution
of general linen and operating room linen.
The Corporation's operations in Canada include nine processing facilities and
two distribution centres under three distinctive brands:
K‑Bro Linen Systems Inc., Buanderie HMR and Les Buanderies
Dextraze. The Corporation operates in ten Canadian cities: Québec
City, Montréal, Toronto,
Regina, Saskatoon, Prince
Albert, Edmonton,
Calgary, Vancouver and Victoria.
The Corporation's operations in the UK include Fishers, which
was acquired by K‑Bro on November 27,
2017. Fishers was established in 1900 and is a leading
operator of laundry and linen processing facilities in Scotland, providing linen rental, workwear
hire and cleanroom garment services to the hospitality, healthcare,
manufacturing and pharmaceutical sectors. The Corporation operates
six UK sites located in Cupar,
Perth, Newcastle, Livingston and Coatbridge.
Additional information regarding the Corporation including
required securities filings are available on our website at
www.k-brolinen.com and on the Canadian Securities Administrators'
website at www.sedar.com; the System for Electronic Document
Analysis and Retrieval ("SEDAR").
TERMINOLOGY
Throughout this news release and other documents referred to
herein, and in order to provide a better understanding of the
financial results, K-Bro uses the terms "EBITDA", "adjusted
EBITDA", "adjusted net earnings", "adjusted net earnings per
share", "debt to total capital", "distributable cash" and "payout
ratio". These terms do not have any standardized meaning under
International Financial Reporting Standards ("IFRS") as set out in
the CICA Handbook. Therefore, EBITDA, adjusted EBITDA, adjusted net
earnings, adjusted net earnings per share, distributable cash and
payout ratio may not be comparable to similar measures presented by
other issuers. Specifically, the terms "EBITDA", "adjusted EBITDA",
"adjusted net earnings", "adjusted net earnings per share",
"distributable cash", and "payout ratio" have been defined as
follows:
EBITDA
K‑Bro reports EBITDA (Earnings before interest, taxes,
depreciation and amortization) as a key measure used by management
to evaluate performance. EBITDA is utilized to measure compliance
with debt covenants and to make decisions related to dividends to
Shareholders. We believe EBITDA assists investors to assess our
performance on a consistent basis as it is an indication of our
capacity to generate income from operations before taking into
account management's financing decisions and costs of consuming
tangible and intangible capital assets, which vary according to
their vintage, technological currency and management's estimate of
their useful life. Accordingly, EBITDA comprises revenues less
operating costs before financing costs, capital asset and
intangible asset amortization, and income taxes.
EBITDA is a sub‑total presented within the statement of earnings
in accordance with the amendments made to IAS 1 which became
effective January 1, 2016. EBITDA is
not considered an alternative to net earnings in measuring K‑Bro's
performance. EBITDA should not be used as an exclusive measure of
cash flow since it does not account for the impact of working
capital changes, capital expenditures, debt changes and other
sources and uses of cash, which are disclosed in the consolidated
statements of cash flows.
|
|
Three Months Ended
March 31,
|
|
(thousands)
|
2022
|
|
2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
earnings
|
$
(446)
|
|
$
1,634
|
|
Add:
|
|
|
|
|
|
Income tax (recovery)
expense
|
(19)
|
|
822
|
|
|
Finance
expense
|
1,000
|
|
865
|
|
|
Depreciation of
property, plant and equipment
|
5,856
|
|
5,878
|
|
|
Amortization of
intangible assets
|
671
|
|
862
|
|
|
|
|
|
|
|
EBITDA
|
$
7,062
|
|
$
10,061
|
|
Non-GAAP Measures
Distributable Cash
Flow
Distributable cash flow is a measure used by management to
evaluate the Corporation's performance. While the closest IFRS
measure is cash provided by operating activities, distributable
cash flow is considered relevant because it provides an indication
of how much cash generated by operations is available after capital
expenditures. It should be noted that although we consider this
measure to be distributable cash flow, financial and non‑financial
covenants in our credit facilities and dealer agreements may
restrict cash from being available for dividends, re‑investment in
the Corporation, potential acquisitions, or other purposes.
Investors should be cautioned that distributable cash flow may not
actually be available for growth or distribution from the
Corporation. Management refers to "Distributable cash flow" as to
cash provided by (used in) operating activities with the addition
of net changes in non‑cash working capital items, less share‑based
compensation, maintenance capital expenditures and principal
elements of lease payments.
|
|
|
Three Months Ended
March 31,
|
|
(thousands)
|
|
2022
|
2021
|
|
|
|
|
|
|
|
Cash provided by
operating activities
|
|
$
9,713
|
$
8,542
|
|
Deduct
(add):
|
|
|
|
|
|
Net changes in non-cash
working capital items
|
|
3,098
|
692
|
|
|
Share-based
compensation expense
|
|
512
|
506
|
|
|
Maintenance capital
expenditures
|
|
690
|
112
|
|
|
Principal elements of
lease payments
|
|
1,834
|
1,852
|
|
Distributable cash
flow
|
|
$
3,579
|
$
5,380
|
|
Payout Ratio
"Payout ratio" is defined by management as the actual cash
dividend divided by distributable cash. This is a key measure used
by investors to value K-Bro, assess its performance and provide an
indication of the sustainability of dividends. The payout ratio
depends on the distributable cash and the Corporation's dividend
policy.
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
(thousands)
|
|
2022
|
2021
|
|
|
|
|
|
|
Cash
dividends
|
|
3,216
|
3,203
|
|
Distributable cash flow
|
|
3,579
|
5,380
|
|
|
|
|
|
Payout ratio
|
|
89.9%
|
59.5%
|
|
|
|
|
|
Debt to Total Capital
"Debt to total capital" is defined by management as the
total long‑term debt (excludes lease liabilities) divided by the
Corporation's total capital. This is a measure used by investors to
assess the Corporation's financial structure.
Distributable cash flow, payout ratio, debt to total capital
adjusted EBITDA, adjusted net earnings, and adjusted net earnings
per share are not calculations based on IFRS and are not considered
an alternative to IFRS measures in measuring K‑Bro's performance.
Distributable cash Flow, payout ratio, adjusted EBITDA, adjusted
net earnings, and adjusted net earnings per share do not have
standardized meanings in IFRS and are therefore not likely to be
comparable with similar measures used by other issuers.
FORWARD LOOKING STATEMENTS
This news release contains forward‑looking information that
represents internal expectations, estimates or beliefs concerning,
among other things, future activities or future operating results
and various components thereof. The use of any of the words
"anticipate", "continue", "expect", "may", "will", "project",
"should", "believe", and similar expressions suggesting future
outcomes or events are intended to identify forward‑looking
information. Statements regarding such forward‑looking information
reflect management's current beliefs and are based on information
currently available to management.
These statements are not guarantees of future performance and
are based on management's estimates and assumptions that are
subject to risks and uncertainties, which could cause K-Bro's
actual performance and financial results in future periods to
differ materially from the forward-looking information contained in
this news release. These risks and uncertainties include, among
other things: (i) risks associated with acquisitions, including the
possibility of undisclosed material liabilities; (ii) K-Bro's
competitive environment; (iii) utility costs, minimum wage
legislation and labour costs; (iv) K-Bro's dependence on long-term
contracts with the associated renewal risk including, without
limitation, in connection with the settlement of definitive
documentation in respect there of; (v) increased capital
expenditure requirements; (vi) reliance on key personnel; (vii)
changing trends in government outsourcing; (viii) changes or
proposed changes to minimum wage laws in Ontario, British
Columbia, Alberta,
Quebec, Saskatchewan and the United Kingdom (the "UK"); (ix) the
availability of future financing; * textile demand; (xi) the
adverse impact of the COVID-19 pandemic on the Corporation, which
has been significant to date and which we believe will continue to
be significant for the short to medium term; (xii) availability and
access to labour; (xiii) rising wage rates in all jurisdictions the
Corporation operates and (ix) foreign currency risk. Material
factors or assumptions that were applied in drawing a conclusion or
making an estimate set out in the forward-looking information
include: (i) volumes and pricing assumptions; (ii) expected impact
of labour cost initiatives; (iii) frequency of one-time costs
impacting quarterly and annual financial results; (iv) foreign
exchange rates; (v) the level of capital expenditures and (vi) the
expected impact of the COVID-19 pandemic on the Corporation.
Although the forward-looking information contained in this news
release is based upon what management believes are reasonable
assumptions, there can be no assurance that actual results will be
consistent with these forward-looking statements. Certain
statements regarding forward-looking information included in this
news release may be considered "financial outlook" for purposes of
applicable securities laws, and such financial outlook may not be
appropriate for purposes other than this news release. Forward
looking information included in this news release includes the
expected annual healthcare revenues to be generated from the
Corporation's contracts with new customers, calculation of costs,
including one-time costs impacting the quarterly financial results,
anticipated future capital spending and statements with respect to
future expectations on margins and volume growth, as well as
statements related to the impact of the COVID-19 pandemic on the
Corporation.
All forward‑looking information in this news release is
qualified by these cautionary statements. Forward‑looking
information in this news release is presented only as of the date
made. Except as required by law, K‑Bro does not undertake any
obligation to publicly revise these forward‑looking statements to
reflect subsequent events or circumstances.
This news release also makes reference to certain measures in
this document that do not have any standardized meaning as
prescribed by IFRS and, therefore, are considered non‑GAAP
measures. These measures may not be comparable to similar measures
presented by other issuers. Please see "Terminology" for further
discussion.
SOURCE K-Bro Linen Inc.